RESEARCH PAPER SERIES, 2021–22   23 February 2022

The Pharmaceutical Benefits Scheme: a quick guide

Rebecca Storen, Rosalind Hewett and Emma Vines

Social Policy Section

This is an update of an earlier version of this quick guide by Alex Grove, published in April 2016.

1 Summary

This quick guide provides an introduction to the Pharmaceutical Benefits Scheme (PBS), the Australian Government program which subsidises the cost of approved medicines. The quick guide highlights the cost of the PBS to the Australian Government, the price of PBS medicines for patients, medicines available on the PBS and the approval process that pharmaceutical companies undertake to have their medicines subsidised. It also outlines agreements between the Australian Government and external stakeholders that are relevant to the PBS and identifies some key future developments.

2 Introduction

The Australian Government subsidises the cost of many medicines for Australians through the Pharmaceutical Benefits Scheme (PBS). The first attempt to legislate for a scheme to provide approved prescription medicines, such as antibiotics, free of charge to Australian residents was made by the Curtin Labor Government in 1944 but the legislation was struck down by the High Court as unconstitutional. Following an amendment to the Constitution in 1946, a limited version of the PBS began in 1948, offering free medicines for pensioners and 139 ‘life-saving and disease preventing’ medicines free of charge to the general public. The PBS became a comprehensive scheme offering access to a wide range of medicines in 1960.

The PBS is now regarded as a key component of the National Medicines Policy (NMP) which ‘aims to improve positive health outcomes for all Australians through their access to and wise use of medicines’. The PBS is established under Part VII of the National Health Act 1953 (the NHA).

All Australian residents who hold a current Medicare card are eligible for the PBS. In addition, some overseas visitors are eligible for some PBS medicines through reciprocal health care agreements.

Expenditure on the PBS is uncapped, and can therefore increase as new drugs are added and demand grows. The Parliamentary Budget Office has modelled the PBS’s projected growth between 2018–19 and 2030–31 (based on the policy setting underlying the 2020–21 Budget), which shows nominal Australian Government payments for the PBS rising from $13 billion to $21 billion. However, as a percentage of Gross Domestic Product (GDP), the PBS would stay steady at 0.7 per cent. According to these projections, by 2030–31, the PBS will account for a 2.5 per cent share of total Government payments (p. 23).

3 Co-payments and safety nets

Patients pay a co-payment towards the cost of each PBS medicine, with the Australian Government generally covering the remaining cost (there are instances where people may pay more than the co-payment, for example if they choose a particular brand of medicine over another brand of the same medicine). This keeps otherwise expensive medicines affordable for people. Patient co-payments are currently set at $6.80 for concession card holders and a maximum of $42.50 for those ineligible for a concession (known as general patients). Under the Closing the Gap PBS Co-Payment Program, eligible Aboriginal and Torres Strait Islander people who would normally pay the full co-payment only pay the concessional rate, and those who would normally pay the concessional rate are not required to pay the PBS co-payment. In 2020–21, co-payments from patients on PBS-subsidised medicines amounted to $1.4 billion.

The PBS Safety Net scheme is intended to protect patients needing a large number of medicines in one year from excessive out of pocket costs. Individuals and families who spend an amount equal to their Safety Net threshold on co-payments in a calendar year receive further prescriptions for that year for free (if they are concession card holders) or for the concessional co-payment of $6.60 (if they are general patients). The 2022 thresholds are $326.40 for concession card holders and $1,542.10 for general patients, with families able to reach the threshold sooner.

Since 1 January 2016, pharmacists have been permitted to offer consumers a discount of up to $1 on each PBS co-payment, as long as the pharmacist absorbs the cost of the discount.

Under section 99G of the NHA, co-payments and Safety Net thresholds are adjusted in line with the Consumer Price Index (CPI) on 1 January each year. The PBS website provides a table outlining the history of PBS co-payments and Safety Net thresholds since 1960.

4 Medicines subsidised under the PBS

As at June 2021, the PBS included 906 different medicines sold under 5,380 brands.

Medicines that are subsidised under the PBS are listed on the Schedule of Pharmaceutical Benefits (the Schedule). The Schedule can be downloaded, browsed or searched via the ‘PBS Medicine Search’ box on the PBS website. Changes to the Schedule are made every month by amendments to the National Health (Listing of Pharmaceutical Benefits) Instrument 2012, which is made under the NHA.

5 General medicines

Most PBS medicines are dispensed by community pharmacies and used by patients at home. These are known as ‘General Schedule’ or ‘section 85’ medicines because they are dispensed under section 85 of the NHA.

6 Medicines with special arrangements

Under section 100 of the NHA, some PBS medicines are supplied through special arrangements where normal supply through community pharmacies is not suitable. For example, some medicines may require special storage or dispensing, specialist monitoring during treatment, or administration in a hospital outpatient setting.

Such medicines are subsidised on the PBS under a number of ‘Section 100’ programs, including:

• the Highly Specialised Drugs Program for PBS medicines, which must be prescribed by or under the guidance of a treating specialist, and dispensed by a hospital pharmacy (with some exceptions)

• Efficient Funding of Chemotherapy arrangements for PBS cancer medicines that are administered through infusion or injection

• programs for PBS-subsided supply of botulinum toxin, human growth hormone and In Vitro Fertilisation (IVF) medicines, and

• the Opiate Dependence Treatment Program, which funds the cost of methadone and other medicines for the treatment of opioid addiction.

In addition to the above programs for specific medicines, section 100 also allows for the supply of many PBS medicines to remote area Aboriginal Health Services (AHS). Under these arrangements, patients of an approved AHS can receive medicines at the time of consultation without being charged and without the need for a normal PBS prescription form.

7 Subsidised medicines for veterans

Eligible veterans receive subsidised medicines through the Repatriation Pharmaceutical Benefits Scheme (RPBS), which is administered by the Department of Veterans’ Affairs (DVA) under the Veterans’ Entitlements Act 1986. This includes medicines listed on the PBS, as well as additional items such as wound care products, which are listed on the Repatriation Schedule of Pharmaceutical Benefits.

8 PBS expenditure 2020–21

According to the PBS Expenditure and Prescriptions Report for 1 July 2020 to 30 June 2021, total Government expenditure for the supply of medicines under section 85 and section 100 was $13.8 billion (excluding revenue), compared with $12.6 billion for 2019–20 (an increase of 9 per cent).

According to the DVA 2020–21 Annual Report, administered expenses for the RPBS were $313.5 million (p. 234).

9 Statistics on PBS medicines

PBS statistics are available in a number of forms. The annual PBS Expenditure and Prescriptions reports include information on the most frequently prescribed medicines and the highest cost medicines. These reports focus mainly on general (section 85) medicines, but also include some statistics on RPBS and section 100 medicines.

Statistics on the number of prescriptions and cost of subsidies paid for individual PBS and RPBS medicines are available via PBS Item Reports on the Services Australia website. The item numbers or codes for individual medicines can be located by entering the name of the medicine in the ‘PBS Medicine Search’ box on the PBS website. Caution should be used when generating these reports, as the same medicine may have more than one item number, and item numbers may change over time.

10 Life-saving drugs supplied outside the PBS

The Australian Government provides subsidised access, outside of the PBS, to 16 expensive ‘life saving drugs’ for 10 very rare conditions through the Life Saving Drugs Program (LSDP). As with the PBS, only patients eligible to receive Medicare benefits can access the LSDP. In 2020–21, 463 patients received drugs through the LSDP (p. 88).

11 The listing process for PBS medicines

Therapeutic Goods Administration approval process

Before a medicine can be listed on the PBS, it must first be approved for use in Australia by the Therapeutic Goods Administration (TGA). The sponsor of the medicine, usually a pharmaceutical company, applies to the TGA to have the medicine included in the Australian Register of Therapeutic Goods (ARTG) so that it can be sold in Australia. The sponsor must provide evidence (such as from clinical trials) that the medicine meets the required standards of quality, safety and effectiveness for the intended use (noting that some medicines may be used for multiple conditions).

PBS approval process

A medicine or vaccine that is listed on the ARTG can be legally supplied in Australia. However, the medicine will not attract an Australian Government subsidy unless the sponsor applies, and is successful, in having their medicine listed on the PBS. Without the subsidy, patients must pay the full cost of the medicine. Applications for PBS listing are considered by the Pharmaceutical Benefits Advisory Committee (PBAC), which is an independent expert body appointed by the Australian Government. A new medicine cannot be listed on the PBS unless the PBAC makes a positive recommendation for its listing. Under section 101 of the NHA, the PBAC must take into account both the cost and clinical effectiveness of the medicine when compared with other treatments for the same condition. Submissions to list vaccines, including requests that they be included in the National Immunisation Program, must also include advice from the Australian Technical Advisory Group on Immunisation (ATAGI), which provides advice on vaccines, including their effectiveness.

The PBAC Guidelines set out in detail the information that the sponsor needs to include in their application. This includes information about the new medicine and the medicine or treatment it is being compared to, evidence from clinical trials, an economic evaluation and an estimate of the impact of supplying the medicine on the Budget.

The PBAC has 17 weeks to assess and decide on the application, based on the cost-effectiveness or ‘value for money’ of the new medicine when compared to existing treatments, as well as the quality, safety, efficacy and effectiveness of the item.

Consideration of a new medicine by the PBAC can result in one of three outcomes: a recommendation to Government that the medicine be listed on the PBS; a decision not to recommend listing on the PBS; or the deferral of a decision pending additional information. Since 2005, the PBAC has published Public Summary Documents giving reasons for its decisions on each medicine considered for listing.

If a medicine does not receive a positive recommendation from the PBAC, the sponsor may prepare and resubmit a new application for PBS listing, or they may choose not to reapply and only to sell the medicine in Australia via private prescription.

If a positive recommendation is given by the PBAC, the sponsor must still negotiate the final arrangements for listing on the PBS, including pricing, with the Department of Health. The Minister for Health has the power to list a medicine on the PBS (in accordance with the NHA); however, since 2001, the Government has required decisions for listings anticipated to have a significant financial impact (currently over $20 million per annum) must be considered by Cabinet. Submissions to include medicines and vaccines to the TGA and the PBAC can be made under parallel process arrangements. This approach may be used to decrease the time needed for a new medicine or vaccine to be listed on the PBS when it has not been approved for use in Australia, making it more readily available for people to access (although a medicine must be registered on the ARTG before it can be listed on the PBS).

The PBAC and the Minister for Health can request reviews of PBS listings, including for cost-effectiveness and medicine utilisation. Items can be deleted from the PBS. Medicines are removed from the Schedule for different reasons, including at the request of the sponsor, and may be listed as a Supply Only item (available for dispensing but not prescribing, generally for 12 months from the deletion date), where appropriate. All changes are summarised on the PBS website.

The Medicine Status Website allows people to monitor the status of medicines as they progress through the PBS listing process.

12 Agreements with industry

The Australian Government maintains agreements with external stakeholders who have a direct interest in the operation of the PBS. These include agreements with community pharmacies and with the pharmaceutical industry.

Community Pharmacy Agreements

Pharmacists need approval under section 90 of the NHA to dispense PBS medicines from a particular pharmacy. The pharmacist charges the patient the relevant co-payment, and claims the remainder of the PBS-dispensed price for the medicine from the Australian Government. The PBS-dispensed price is made up of the cost of the medicine to the pharmacist, plus handling, dispensing and other fees.

These remuneration arrangements for pharmacists have been determined in a series of agreements between the Australian Government, the Pharmacy Guild of Australia (the national peak body representing community pharmacies), and, in the most recent agreement, with the Pharmaceutical Society of Australia (the national peak organisation representing pharmacists). The most recent agreement, the Seventh Community Pharmacy Agreement (7CPA), commenced on 1 July 2020 and will remain in place for five years. In addition to pharmacist remuneration and Community Service Obligations for pharmaceutical wholesalers, the 7CPA encompasses funding for community pharmacy programs, Pharmacy Location Rules (which regulate where approved pharmacies can operate), a commitment from the Government to support the adoption of a nationally consistent approach to vaccine administration by pharmacists, and other matters.

Pharmaceutical Industry Agreements

PBS policy and price settings have a significant impact on pharmaceutical companies, who in turn lobby and negotiate with the Government, in particular through their peak bodies.

Medicines Australia represents the research-based (patented) medicines industry. Medicines Australia and the Australian Government reached a Strategic Agreement in 2017 which promised to deliver $1.8 billion in PBS savings over five years. The next 5-year agreement is due to commence from 1 July 2022. Amongst its measures are commitments from the Australian Government to support an independent review of the Health Technology Assessment policy and methods used by PBAC in 2022–23, as well as reinvesting all savings from the Agreement in the PBS.

The Generic and Biosimilar Medicines Association (GMBA) represents generic and biosimilar (off patent) medicine suppliers in Australia. In 2015, GMBA signed its first Strategic Agreement with the Government (under its previous name of the Generic Medicines Industry Association), containing measures to promote the increased usage of cheaper generic and biosimilar medicines on the PBS. As with Medicines Australia, the next strategic agreement with GMBA is due to commence from 1 July 2022. The agreements with both GMBA and Medicines Australia include a clause for providing security of medicine supply through the implementation of three main measures, including the establishment of a minimum floor price for F2 medicines and the continuation of a modified 30 per cent price disclosure threshold.

13 Future developments

Recent and ongoing reviews relating to the PBS are expected to lead to Government reforms in the coming years. These reviews include:

• The House of Representatives Standing Committee on Health, Aged Care and Sport’s inquiry into approval processes for new drugs and novel medical technologies in Australia, which tabled its report, The New Frontier – Delivering better health for all Australians, in November 2021

• The Review of the National Medicines Policy (NMP), which is currently examining whether the NMP’s objectives should be modified, the utility of the NMP in the context of rapidly evolving treatments and other factors, and whether the NMP captures the diversity of consumers’ needs and expectations, and

• An independent review of Health Technology Assessment (HTA) current policy and methods used by the PBAC to assess new medicines for listing on the PBS, along with contemporary research, and relevant methodologies and purchasing practices used in comparable international jurisdictions.

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